PINC puts buy on Visa Steel at Rs 85

ECONOMICTIMES.COMJun 12, 2008, 12.15pm IST

MUMBAI: PINC Research has reiterated 'buy' on Visa Steel with a 12-month price target of Rs 85. Visa Steel registered excellent growth with revenue rising by 85 per cent to Rs 260 crore. Operating profit margin expanded by 1,160 basis points to 17.8 per cent while net profits surged by 30x to Rs 21 crore. The key attribute to this robust performance was an overall buoyancy in realisations being witnessed in the commodities.

Coke production witnessed a staggering 90 per cent growth to 60k metric tonne in Jan-Mar 2007-08. Gradual ramp up of ferro alloy facility post commissioning in Nov'07 drove ferro alloy production to 10.3k metric tonne in Jan-Mar 2007-08. Sales volumes for the former stood at 56k metric tonne while the latter clocked sales volumes of 5.4k metric tonne. Hot metal production is not comparable as VSL undertook a shutdown for maintenance purposes.

Operating profit margin expanded by 1,160 basis points to 17.8 per cent on a year on year basis as a result of healthy realizations for coke and ferro chrome. Consequently, operating profits also increased by 437 per cent to Rs 46,500 crore. The overall improved performance resulted in net profit rising by 30x to Rs 21 crore.

The upcoming 300k tpa DRI plant and 50MW of power (of proposed 75MW) is expected to go on stream by end of Jan-Mar 2008-09. This should contribute significantly towards volume growth in 2008-09 and 2009-10. Also, the 500k tpa special/stainless steel plant will be commissioned by 2009-10.

At the market price of Rs 52, the stock trades at a P/E of 3x and EV/EBITDA of 3.5x FY10 estimates. PINC sees volume growth emanating post completion of the DRI unit in Jan-Mar 2008-09. This coupled with lower power cost through captive power plant provide ample earnings visibility, so the brokerage remains positive on the stock.